Time to look closer at thrift conversions

News of still another credit union deciding to become a savings bank hardly causes a stir in credit union land. Maybe it's time to begin paying some attention to what has already taken place and what could likely happen further down the road. So far the number of credit unions seeking greener pastures in the banking industry are relatively low. A total of 15 former credit unions are now operating as banks. But half that number, seven more, are already in the pipeline. A total of 22 credit unions converting may not strike many observers as a trend among over 10,000 CUs, but it is significant. Some of the more recent conversions involve much larger credit unions (assets and members) than those CUs that first took the plunge. Undoubtedly, there will be more credit unions getting on the thrift bandwagon, especially if some due diligence by those considering it shows those former credit unions are doing better as banks. Think for a moment about California. At first only a handful of federally chartered credit unions there switched to a state charter. Shortly thereafter, these new state charters either became community credit unions, greatly expanded whom they could serve, or both. Now hardly a day goes by without an announcement regarding a federal to state conversion. And the credit unions making the switch seem to be much larger than the charter switching pioneers. As this trend spreads across the country, the number of former FCUs, is increasing rapidly. And the total assets involved has become substantial. Could the same thing eventually happen in the credit union to thrift arena? As competition from everywhere gets more intense, some credit union leaders say that a thrift conversion is the only way to stay viable and grow. Some have gone so far as to claim their credit union would not have survived if it had not gone the thrift route. I find that hard to believe. For one thing, if they felt that they couldn't continue making it as a FCU, at least in a growing number of states, they could probably get pretty much what they felt they needed by going the state and community route. Also, under its current leadership, NCUA has become increasingly responsive to the needs, challenges, and growth strategies of federal credit unions. And the jury is still out regarding what CUNA's Renaissance Commission may be able to achieve. In other words, it's not like there aren't alternatives to consider before jumping ship completely. Although I find conversions to thrifts personally very troubling, I am well aware that changing charters is certainly a decision that the members of a credit union are well within their rights to make. No conversion can take place without members giving the OK. Since the rules were changed, it now only takes a majority of the members voting rather than a majority of all members. At a recent CU meeting I pointed out that even though members must be notified three times, human nature being what it is, a handful of interested members could vote to have their credit union become a thrift. This observation was quickly shot down by a CEO attending the conference. "I don't know of any election that requires a majority of eligible voters, rather than a majority of those voting, to get elected. If members don't exercise their right to vote," he added, "that's their choice." He's right of course. But the troubling part is still very real. Do the voting members really understand what they are being asked to vote on? I have serious doubts. It has to do with trust. When consumers were asked in a recent independent, national survey to rate financial institutions in the area of trustworthiness, credit unions came in behind banks for the first time. Nevertheless, there is ample evidence that credit union members continue to have the utmost trust in their credit union. That being the case, it would seem to logically follow that members trust the folks whom they elected to set policy, the board of directors. Thus, if the CU's trusted leadership says, we've checked it all out and converting to a bank is in the best interests of the credit union's members, how many members will say anything? Not many. Even if a good case can be made that such a decision is in fact best for members, I can't help having lingering doubts that at least in some cases, the decision might be even more in the best interests of those making it. Since it is pretty obvious that thrift conversions are not going away anytime soon, the apparent lack of interest by most credit union people, but especially by CU trade groups, is surprising. At the very least, shouldn't some CU group try and determine more specifically what motivates the decision to convert and then do what they can to address these concerns? Meanwhile, where are the thrift conversion pro and con articles, educational conference sessions, etc.? At least one state league is on the right track. For the second time, a credit union in Wisconsin is trying to become a bank. The first time the Wisconsin League, under prior management, waged an all-out campaign (including newspaper ads) to defeat the conversion. They were successful, although partly because back then the majority of all eligible voters rule was still in place. This time the league's approach makes more sense for a trade association. It is attempting to make certain that those involved with the credit union know and understand all the advantages of operating as a credit union, before the vote is taken. Most other state and national credit union organizations have for some reason so far taken a hands-off approach as they watch what is arguably still a small number of credit unions cross over. How more many credit unions, representing how much in assets, membership, and annual dues money will it take to get their attention? Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail mwelch@cutimes.com.